Press Release

DBRS Morningstar Maintains Ratings on Small Business Origination Loan Trust 2018-1 DAC and Small Business Origination Loan Trust 2019-1 DAC Under Review

Structured Credit

July 08, 2020

DBRS Ratings Limited (DBRS Morningstar) maintained the Under Review with Positive Implications (UR-Pos.) status of the following ratings on the bonds issued by Small Business Origination Loan Trust 2018-1 DAC (SBOLT 2018-1):

-- Class A Notes - A (high) (sf)
-- Class B Notes - A (high) (sf)
-- Class C Notes - A (low) (sf)
-- Class D Notes - BB (high) (sf)

DBRS Morningstar also maintained the Under Review with Developing Implications (UR-Dev.) status of the following ratings on the bonds issued by Small Business Origination Loan Trust 2019-1 DAC (SBOLT 2019-1):

-- Class A Notes - A (high) (sf)
-- Class B Notes - A (low) (sf)
-- Class C Notes - BBB (low) (sf)
-- Class D Notes - BB (low) (sf)

In both transactions, the rating on the Class A Notes addresses the timely payment of interest and the ultimate payment of principal on or before the legal final maturity date. In both transactions, the ratings on the Class B Notes, Class C Notes, and Class D Notes address the ultimate payment of interest and principal on or before the legal final maturity date. The documents of both transactions permit the deferral of interest on nonsenior bonds and this is not considered an event of default. The legal final maturity date for the Class A, Class B, Class C, and Class D Notes falls on the December 2026 and December 2027 payment dates for the SBOLT 2018-1 and SBOLT 2019-1 transactions, respectively.

The transactions are cash flow securitisations collateralised by a portfolio of term loans and originated through the Funding Circle Ltd (Funding Circle) lending platform to small and medium-size enterprises (SMEs) and sole traders based in the United Kingdom.

Both transactions started to report loans with payment plan modifications as a result of the coronavirus crisis from the May 2020 payment date (end of April 2020 portfolio cut-off date). As the full impact on transaction performance has yet to be ascertained, DBRS Morningstar has maintained the under review period to allow further time for observation before resolving the status of the ratings for both transactions. The ratings were placed under review on 12 April 2020, prior to the publication on 18 May of a commentary outlining how the coronavirus is likely to affect the DBRS Morningstar-rated Structured Credit transactions in Europe “CLO Risk Exposure to the Coronavirus Disease (COVID-19)”: https://www.dbrsmorningstar.com/research/361112/clo-risk-exposure-to-the-coronavirus-disease-covid-19 and https://www.dbrsmorningstar.com/research/362712/european-structured-finance-covid-19-credit-risk-exposure-roadmap.

The DBRS Morningstar Sovereign group released on 16 April 2020 a set of macroeconomic scenarios for the 2020-22 period in select economies. These scenarios were updated on 1 June 2020. For details see the following commentaries: https://www.dbrsmorningstar.com/research/361867/global-macroeconomic-scenarios-june-update and https://www.dbrsmorningstar.com/research/359903/global-macroeconomic-scenarios-application-to-credit-ratings. The DBRS Morningstar analysis considered impacts consistent with the moderate scenario in the referenced reports.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

ESG CONSIDERATIONS

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

Notes:
All figures are in British pound sterling unless otherwise noted.

The principal methodology applicable to the ratings is “Master European Structured Finance Surveillance Methodology” (22 April 2020).

DBRS Morningstar is undertaking a review and will remove the ratings from this status as soon as it is appropriate.

A review of the transaction legal documents was not conducted as the legal documents have remained unchanged since the most recent rating action.

Other methodologies referenced in these transactions are listed at the end of this press release.

These may be found at: http://www.dbrsmorningstar.com/about/methodologies

For a more detailed discussion of the sovereign risk impact on Structured Finance ratings, please refer to “Appendix C: The Impact of Sovereign Ratings on Other DBRS Credit Ratings” of the “Global Methodology for Rating Sovereign Governments” at: https://www.dbrsmorningstar.com/research/350410/global-methodology-for-rating-sovereign-governments

The sources of data and information used for these ratings include investor reports provided by Citibank London in both transactions.

DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.

At the time of the initial ratings on both transactions, DBRS Morningstar was supplied with third-party assessments. However, this did not impact the rating analysis.

DBRS Morningstar considers the data and information available to it for the purposes of providing these ratings to be of satisfactory quality.

DBRS Morningstar does not audit or independently verify the data or information it receives in connection with the rating process.

The last rating actions on this transaction took place on 9 April 2020, when DBRS Morningstar confirmed and placed the ratings on the Class A, B, C and D Notes UR-Pos. in the case of SBOLT 2018-1 and confirmed and placed the ratings on the Class A, B, C and D Notes UR-Dev. in the case of SBOLT 2019-1.

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com.

These ratings are under review with positive or developing implications. Generally, the conditions that lead to the assignment of reviews are resolved within a 90-day period. As this is an Under Review Rating Action, a sensitivity analysis is not applicable.

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings Limited are subject to EU and U.S. regulations only.

Lead Analyst: Natalia Coman, Senior Analyst
Rating Committee Chair: Alfonso Candelas, Senior Vice President
Initial Rating Date: 26 April 2018 for the SBOLT 2018-1 transaction and 29 March 2019 for the SBOLT 2019-1 transaction

DBRS Ratings Limited
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London EC3M 3BY United Kingdom
Tel. +44 (0) 20 7855 6600
Registered and incorporated under the laws of England and Wales: Company No. 7139960

The rating methodologies used in the analysis of these transactions can be found at: http://www.dbrsmorningstar.com/about/methodologies.

A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrsmorningstar.com/research/278375

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

ALL MORNINGSTAR DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AND ADDITIONAL INFORMATION REGARDING MORNINGSTAR DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES, RATING SCALES AND METHODOLOGIES.

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